Greylock’s Jerry Chen on the evolving role of the startup CFO

Welcome to our new thought leadership spotlight, “The Evolving Role of the Startup CFO.” This series features perspectives from prominent players in the startup ecosystem. These blog posts tackle critical questions, including: What does the role of today’s startup chief financial officer (CFO) entail and how will it evolve over the lifecycle of a startup? How can we most effectively support CFOs as the cloud increases its dominance within the organization and balance sheet? And can the CFO better navigate—and ultimately enable—the relationship between technical leaders, CTOs, and engineering teams?

Leading our first spotlight is Jerry Chen, a veteran partner at Greylock Partners, a globally recognized venture capital firm.

The modern startup CFO plays the role of team quarterback

“The CFO really ties it all together,” says Jerry, stressing that the CFO’s responsibilities go well beyond simply saying “no,” which is how the role is often stereotyped. Instead, a dynamic CFO should serve as a partner to the chief executive officer (CEO), founders, and other company leaders—including those in charge of sales, marketing, product/growth analytics, research and development (R&D), and engineering. “The CFO, if he or she is doing her job right, is playing quarterback between all those departments.”

A strategic CFO should be familiar with—and understand which key levers drive—their company’s business model. Above all, it’s important for the CFO to understand which metrics matter most to their own company.

“A great strategic CFO can boil down the four or five metrics that matter for the company as a whole, and then work with each department to understand, from the engineering side, the drivers of cost from a people-cost perspective,” says Jerry.

When a CFO understands the key business drivers, they can better work with executive and people leaders at the company to ensure that they’re making smart hiring and salary decisions. “You build your board for good times and bad times,” says Jerry. Similarly, “Make sure your CFO is going to be a partner in crime to help the startup weather whatever bumps lie in the road ahead.”

Cash is king—and metrics matter

When it comes to non-negotiable metrics, Jerry says CFOs must prioritize the obvious ones. “What are the three reasons startups go out of business?” asks Jerry, who then paraphrases former professor Bill Sahlman from Harvard Business School. “One, they don’t raise enough cash. Two, they don’t price their solutions correctly and ultimately are not collecting enough revenue from customers. Three, they spend too much cash. Startups die because they run out of cash. So, it’s really important to focus on the cash burn, cash flow, cash burn rate.”

In addition, CFOs must pay attention to the company’s gross margins and watch the trend line of whichever metric is most important to their business. “A point in time doesn’t matter to your CFO or to the CEO,” says Jerry.

“It’s the trend line that matters. Are you going up and down? And more important than the trend line is the second derivative. Is burn increasing or decreasing? Is revenue growing faster than before? What’s the long-term gross margin?”

Introducing a strategic CFO to your business at the right time

It’s important to get timing right when hiring a CFO. “The CFO title comes later in life, when a company is pretty far along,” says Jerry. “CFO or C titles are typically reserved for companies at scale.” In the early days, when a startup is only dealing with expenses, they will most likely be able to outsource their payroll to a third party. When the company starts generating revenue, they may need to hire a director of finance in order to manage both the sales and revenue.

“As you’re scaling up, whatever the top line is, you’re going to need a vice president (VP) of finance who can grow into a CFO at the right size of scale,” says Jerry. “Then you have a CFO that needs to play central clearinghouse for the CEO because the growth team, the marketing team, the sales team, and the product team will all have their own metrics…And then, the bonus level is if the CFO can be a strategic partner to the CEO and the founders and the board about what’s right or wrong. That’s next-level.”

The CFO has the opportunity to instill a culture of collaboration, where everyone, especially the startup executives, are working together to reach a common goal. “I think in any healthy community culture, having someone who’s keeping an eye on the bank account is useful,” says Jerry. Sometimes the CFO may need to play devil’s advocate, reminding everyone else that while they’d love to build everything with infinite time and resources, they can’t because the company needs to prioritize gross margins.

“The CFO’s not going to say yay or nay, but should give the resources and the framework for the CEO and the founder to make the decision.”

If your startup is looking to hire a great CFO, past performance is not the only important attribute. Jerry says that when ranking key attributes, agility and adaptability may prove to be the most important for a startup CFO.

“At a startup, your job’s constantly changing. The CFO’s job in 2023 is going to be different in 2024 and will be different in 2025,” says Jerry. “Hopefully you’re going to hire somebody that has the mental agility to grow through those roles.”